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Location: Georgia, on the Florida line, right above Tallahassee
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Maybe I'm oversimplying this...help me out here....
If inflation is around 3 percent..and wages increase along with inflation by around the same percentage and houses increase by 5 percent a year...eventually won't all houses be unaffordable?
Maybe I'm oversimplying this...help me out here....
If inflation is around 3 percent..and wages increase along with inflation by around the same percentage and houses increase by 5 percent a year...eventually won't all houses be unaffordable?
Consumer goods (necessities) shoot up in price, and assets that are not as necessary decrease in value. Since renting is an alternative to buying and there's a glut of houses available, ownership of housing isn't considered as necessary. Similarly, stocks and automobiles are assets which could lose value in real (and perhaps even nominal) terms.
That CNN article, as is usual, took all of the negative aspects out of the original article that the NAR published, in order to put on their negative slant.
They conveniently left out everyone of the positive aspects where so many of the areas are not declining.
It's probably because the media is starting to realize that the positive spin coming from the NAR has been wrong consistently for the past 2-3 years as they've tried any lame attempt they could to pump up the real estate market. For instance, in this article they go on and on about low priced condos, and then barely remembers to mention that nationwide sales volume is down nearly 10%. And the article points out the largest % price gain (can anyone actually find Cumberland, MD on a map) but doesn't mention the largest % price drop at all. Without that kind of balance in the original article, the journalist is left with raw data to report, which unfortunately is pretty bad.
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Here is the full article that also gives the positive side:
This is pretty weak, honestly. Everyone who cares what the median price of homes is in Saginaw, MI please raise their hands. Great, me neither. It's not something that the national media should take time to report. It's also borderline misleading - the article
What the media is correctly picking up the unprecedented decline in values nationwide. Considering the NAR's stance on this being impossible (see Anti-Bubble Q&A, for an example if you like irony - e.g. "There is virtually no risk of a national housing price bubble, based on the fundamental demand for housing and predictable economic factors."), I think the media is doing a good job getting what useful statistical info they can from the NAR and ignoring the spin. The NAR has shown very little value add over the past five years, so it makes sense to ignore their attempts at it now.
Maybe I'm oversimplying this...help me out here....
If inflation is around 3 percent..and wages increase along with inflation by around the same percentage and houses increase by 5 percent a year...eventually won't all houses be unaffordable?
If wages increase at 3.7% and houses increase by 5%, then what can you do do work with that?
One way is to say I will never be able to afford a house because my wages won't keep up with inflation.
Another way is to say if houses increase more than wages, then maybe I should find a way to get into the housing investment business. People have done that from day one.
For those who haven't played the Cash Flow 101 game, I suggest you try it. Just google for Cash Flow games and you'll find one in your area.
It's like monoply except that it deals with real life situations; transactions that have actually taken place. It's not only fun but very educational.
It has wage earning as the "rat race". The goal is to get out of the rat race by earning passive income, and increasing that until the passive income surpasses the expenses, and then quit the job and continue in the business of investing. By quitting the job you have more time to invest and will increase the income drastically.
One of the owners of the company I'm with began investing about 10 years ago. He bought a foreplex and lived in one unit. He saved his money and bought another one. He continued this until he had about 32 units (8-4plexes) Then he could afford to quit his job and go into investing full time. He now has a partner and they help the agents in the company, who are interested, to get into the investing end of the business.
So rather than look at problems, my suggestion is to look for solutions and opportunities.
If wages increase at 3.7% and houses increase by 5%, then what can you do do work with that?
One way is to say I will never be able to afford a house because my wages won't keep up with inflation.
Another way is to say if houses increase more than wages, then maybe I should find a way to get into the housing investment business. People have done that from day one.
For those who haven't played the Cash Flow 101 game, I suggest you try it. Just google for Cash Flow games and you'll find one in your area.
It's like monoply except that it deals with real life situations; transactions that have actually taken place. It's not only fun but very educational.
It has wage earning as the "rat race". The goal is to get out of the rat race by earning passive income, and increasing that until the passive income surpasses the expenses, and then quit the job and continue in the business of investing. By quitting the job you have more time to invest and will increase the income drastically.
One of the owners of the company I'm with began investing about 10 years ago. He bought a foreplex and lived in one unit. He saved his money and bought another one. He continued this until he had about 32 units (8-4plexes) Then he could afford to quit his job and go into investing full time. He now has a partner and they help the agents in the company, who are interested, to get into the investing end of the business.
So rather than look at problems, my suggestion is to look for solutions and opportunities.
"Thinking outside the box" was a common expression used by dot com CEOs who claimed that P/E ratios didn't matter, and until recently by real estate speculators who claimed that affordability and other fundamentals didn't matter.
The fundamental laws of economics always has and always will trump attempts at "shifting the paradigm". Yes, YOU can indeed make money with cash flow games, selling making money packages, running a cash advance business, whatever. Unfortunately, housing prices won't benefit since the masses won't have their wages increase with inflation.
Kind of reminds me of my former corporate days and all those funny buzzwords.
Do you have some data/facts or examples to back up your assertion?
For example, if someone has $50K cash to invest, how would the 10 and 20 years scenarios work out investing all $50K in a stock that returns 8%/yr. versus purchasing a $200K home that appreciates at 5% per year and rents for $1,700/mo (for example). Real Estate is a long term investment (at least for me it is), so I would run at least a 10 year scenario.
Homes on average appreciate a bit under 1% real (3-4% nominal), so your 5% estimate is way high. Stocks appreciate at about 8% real (11-12% nominal). Your house appreciation number is off by about 5x, which will obviously make the house look good.
And can you provide an example of a $200K house renting for $1700 per month? I don't know of any areas with a cap rate like that. You're basically paying 2x the mortgage payment to live in someone else's house at that point (assuming 20% down) - that's an invitation for investors to flood the market and drive rents down.
From what I see locally, you get the mortgage payment back and maybe taxes in rent. So assuming no vacancy or repair and assuming that you are your own landlord and don't lose a month's rent every year to a property management company, you basically break even every month - the rent goes to pay the mortgage including escrow and you're done.
So you put in $50K, it appreciates $21K over 10 years, and you get about $25K in equity back from the renter paying the mortgage. You lose $13K in commission, and a few thousand in taxes. Over the 10 years, you turned $50K into $83K. Over the same time period, you'd have turned the $50K into nearly $150K in stocks. You'd lose a bit to taxes, but you're still doing better than the house.
Even if you use your 2 or 3% real appreciation for houses, stocks still come out ahead. And you don't have to go fix someone's leaky toilet in the middle of the night if you invest in stocks instead of becoming a landlord.
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What role does leverage play? Absent the freakish bubble years we've just seen in real estate from 2001-2006, and stocks from 1997-2001, how do the long term comparisons work out?
If you're using leverage for an investment in a house, a fair comparison would be to include it in the stock market investment as well. That'll multiply the lead that stocks have over home appreciation. Of course it also introduces risks, but it does in both cases so it's not unreasonable. For a few years there you could use infinite leverage on houses and not on stocks, but the lenders that did that have gone bankrupt so it's obviously not a sustainable strategy - the risk showed up.
In any case, multiply the stock returns by 2 or 3 to account for leverage if you want to take on that risk to beat the house performance by a lot more. Or don't use leverage and get the return I mentioned above for less risk in the market. Either way works fine.
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I think you'll find that "not by a long shot" can't be backed up with data, except maybe in individual, anecdotal examples.
So you put in $50K, it appreciates $21K over 10 years, and you get about $25K in equity back from the renter paying the mortgage. You lose $13K in commission, and a few thousand in taxes. Over the 10 years, you turned $50K into $83K. Over the same time period, you'd have turned the $50K into nearly $150K in stocks. You'd lose a bit to taxes, but you're still doing better than the house.
Ugh, I got the final value for the stocks is wrong. It's more like $120K instead of $150K. Doesn't change the overall message, but $30K is still $30K.
Was there a whole new group of writers hired in the past year or so? Because all I remember before that time was writers pumping up the RE market with positive stories. Maybe that was the work of all the old writers who owned houses. Then a year or so ago every newspaper, TV station and online news source fired all of their old writers at once and replaced them with younger agents who all had the sole goal of destroying the RE market so they could buy houses. Sounds reasonable to me
Haha, so true.
In all seriousness, many newspapers are buying out their senior staff to replace them with younger, cheaper staff. Of course, the argument is still ludicrous on its face, and only an organization as brazen as the NAR would put forth something like that.
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Originally Posted by BeerNPoker
I keep wondering about the "Mortgage crisis" especially and the claim that no one can qualify for a loan without a massive down payment, etc....
FHA, I was approved for a $240K house (brand new) at 5.5% with a paltry 3% down with a median credit score of around 620 (my wife was around 660).... Combined we make around $85K-$90K a year.
People who cannot qualify must either be trying to buy too much house or have REALLY crappy credit, or the "crisis" is specific to markets where an okay house is still going for over $400K (like Cali or the Northeast)
Good for you. And really, you're doing the right thing--your home is less than 3 times your combined gross annual income. In my bubbly area, 240K won't buy you a 1BR condo in a decent neighborhood.
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Originally Posted by Captain Bill
Oh but that makes for selling newspapers.
As I've said in other posts, the media only prints out the negative
Don't let the negative news get you down. In great areas where you're located, sales are slow, but one day the person who will fall in love with your home will come along. Just keep watching the comps.
The jumbo loan limits will be raised in that area and that will help sales in the homes up to around 700k bracket, depending on where Fannie and Freddie set the prices there. That will get some more action because of the lower interest rate.
That's a pretty brazen accusation, and I'm sure you can present your sources and legal case history to prove that statement. And another attempt to try and convince people that there is a set price point where home prices should be; which is where you want to see them.
In most cases neither the buyer or sellers realtor even see the appraiser. The lender sends them out, and in many cases they've been there and gone before we even know it. And don't forget --- it is the LENDERS who choose the appraiser; Not the realtors.
The appraisers the lenders choose must be on the lenders approved list. So it would be almost like a crap shoot for a realtor to even know the appraiser, let alone be in cahoots with them.
But the OP is concerned about the negative news of today, and how it is affecting the selling of his/her home. I don't think the OP intended the thread to deteriorate into a chastising of buyers and other entities, and others as a thread to further their own agenda.
I'll leave aside the distribution of homes sold (if there are affordability issues, relatively lower-priced homes don't sell; higher-priced units sell at lower prices, but make it appear as though the "typical" price has risen; note that NAR nowhere references the volume in $ or units sold).
The big point is, not all MSA's are equal. If you look, for example, at the top 20 MSA's by population, you'll see that
a) some went down a little (ATL -1.5%; BAL, -1.0%; BOS, -1.9%; CHI, -2.6%; NY, -1.1%)
b) some went down a good chunk (MIA, -5.7%; MIN, -4.9%; WAS, -5.1%)
c) some went down a lot (DET, -13.8%; LA, -13.1%; PHO, -7.8%; Riverside, -16.8%; SD, -9.8%; STL, -7.0%; TAM, -12.2%)
d) some went up a little bit (DAL, 0.5%; HOU, 1.1%; PHI, 1.1%; SEA, 1.2%)
e) just one went up a good chunk (SF, 5.5%).
That means that, not only did a large majority of the most-populous MSA's experience a decline, they experienced a much steeper decline on average than those that experienced an increase.
Was there a whole new group of writers hired in the past year or so? Because all I remember before that time was writers pumping up the RE market with positive stories. Maybe that was the work of all the old writers who owned houses. Then a year or so ago every newspaper, TV station and online news source fired all of their old writers at once and replaced them with younger agents who all had the sole goal of destroying the RE market so they could buy houses. Sounds reasonable to me
Ok the young writers are investors just like short term traders. Market down the they buy and market up they sell. A normal career progression might suggest that the headline writers are not the same people. Food for thought
Do you have some data/facts or examples to back up your assertion?
For example, if someone has $50K cash to invest, how would the 10 and 20 years scenarios work out investing all $50K in a stock that returns 8%/yr. versus purchasing a $200K home that appreciates at 5% per year and rents for $1,700/mo (for example). Real Estate is a long term investment (at least for me it is), so I would run at least a 10 year scenario.
What role does leverage play? Absent the freakish bubble years we've just seen in real estate from 2001-2006, and stocks from 1997-2001, how do the long term comparisons work out?
I think you'll find that "not by a long shot" can't be backed up with data, except maybe in individual, anecdotal examples.
Steve, there is no comparision. A home IS an investment, howeve its a lousy financial investment compared to equities.
A home has significant front and back loads (ie commissions/closing costs). The yearly costs for upkeep are steep and historically a home appreciates slightly above the inflation rate. While a diversified portfolio of low cost, tax efficient stocks/bonds over the long term would yield a much better "return" if that's what your asking.
Now we all know you can't live in your 800 shares of GE stock....
However, some people are brainwashed believing a home is a very good FINANCIAL investment.
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